It's been many years since I've heard anyone remark to me,「日本語がお上手ですね」("Nihongo ga ojōzu desu ne," "Your Japanese is good").

It took me a while to realize that such a remark was probably never really intended as a compliment in the first place. Rather, it should be taken as encouragement, meaning something akin to: "Wow, I actually understood what you just said. You're making progress. Keep at it."

What's a better way to say it then?「日本語がぺらぺら 」 ("Nihongo ga pera-pera") is a colloquial way to describe someone's fluency. Even better would be to say「日本語が完璧です」("Nihongo ga kanpeki desu," "[his] Japanese is perfect").